Financial Services Regulation and Compliance - Insurance Apr 2021
DOMESTIC
Central Bank of Ireland Consumer Protection Outlook 2021
On 29 March 2021, the Central Bank of Ireland (CBI) published its Consumer Protection Outlook 2021.This sets out its consumer and investor protection priorities. Among other items, the CBI restated the need for transparency in the insurance sector and emphasised that insurance firms need to be clear and forthcoming about the cover provided in respect of COVID-19.
Some of the key areas of focus identified by the CBI in relation to insurers include:
- conducting differential pricing practice reviews for motor and home insurance business lines;
- adopting a consumer-centric approach in the resolution of COVID-19 business interruption claims;
- continued development of diversity and inclusion within insurers;
- contribution to the European review of Packaged Retail Investments and Insurance Products Regulation; and
- the development of disclosure requirements for consumers under the Sustainable Finance Disclosure Regulation and the Taxonomy Regulation.
Personal Injuries Guidelines
On 24 April 2021, new Personal Injuries Guidelines (the Guidelines) came into effect. The Guidelines have changed the amounts of General Damages awarded by the Courts and the Personal Injuries Assessment Board (PIAB), resulting in a reduced level of damages for various injury categories. Following the commencement date of 24 April 2021, the Guidelines replace the Book of Quantum and apply to all cases assessed by PIAB. Where a claim is assessed before 24 April 2021, it will be assessed based on the Book of Quantum.
New Regulations requiring Recovery Plans for (Re)insurers
On 19 April 2021, the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Recovery Plan Requirements for Insurers) Regulations 2021 (S.I. 184/2021) (the Regulations) were commenced. The Regulations take into account the responses received to Consultation Paper 131 – 'Regulations for pre-emptive recovery planning for (re)insurers' (feedback statement published on 27 April 2021).
(Re)insurers are required to prepare a pre-emptive recovery plan and must provide a copy of the recovery plan to the CBI on request. The CBI expects that High or Medium-High impact (re)insurers will be required to submit an initial recovery plan by 31 March 2022 and subsequent versions within one month of the plan's approval by the (re)insurer's board of directors. The recovery plan must be reviewed and if necessary, updated at 12 or 24 month intervals, depending on the impact classification of the (re)insurer, or after any material change to the structure of the (re)insurer, its business or its financial position.
To assist with preparation of the recovery plan, the CBI published its Recovery Plan Guidelines for (Re)insurers. The deadline for preparation of a recovery plan under the Regulations is 31 March 2022 (or within 12 months of authorisation where the (re)insurer is newly authorised on or after the date on which the Regulations come into operation).
EUROPEAN
EIOPA launches IDD Single Rulebook
On 8 April 2021, the European Insurance and Occupational Pensions Authority (EIOPA) launched its Insurance Distribution Directive (IDD) Single Rulebook.
The Single Rulebook is an online tool aimed at increasing consistency of regulatory supervision across the European insurance sector by improving the understanding of the applicable law found in the IDD, the Delegated and Implementing Regulations and the EIOPA Guidelines.
The IDD Single Rulebook is the second rulebook published by EIOPA following the publication of the Solvency II Single Rulebook in July 2020.
EIOPA issues opinion on the supervision of the use of climate change risk scenarios in ORSA
On 19 April 2021, EIOPA issued its opinion on the supervision of climate change risk scenarios in the Own Risk and Solvency Assessment (ORSA).
EIOPA outlined that national supervisory authorities (NCAs) should expect the inclusion of climate change risks in insurers' systems of governance, risk management processes and ORSAs. EIOPA acknowledged that the methodologies surrounding climate change risk are emerging but that insurers have to develop their ability to measure and assess these risks, as they will undergo regulatory review in the ORSA. The report provides mapping detail for non-life insurance, life insurance (including health) and guidance on the assessment and inclusion of climate change risk scenarios in the ORSA.
EIOPA will start monitoring national supervisory authority adherence to this opinion after two years.
Sustainable Finance and EU Taxonomy – Measures to channel money towards sustainable activities
On 21 April 2021, the European Commission adopted a package of measures aimed at increasing sustainable financial practices across the EU.
The package includes the EU Taxonomy Climate Delegated Act (the Delegated Act). The Delegated Act promotes sustainable investment practices by clarifying which economic activities contribute to the EU's environmental objectives. The package also proposes a Corporate Sustainability Reporting Directive to provide consistency in financial sustainability reporting across the EU. Amendments to six Delegated Acts, that amend various sectoral regimes, including the IDD and Solvency II regimes, are also included in the package of measures.
Insurance Stress Test 2021 (updated 12 April 2021)
EIOPA has launched its 2021 stress test exercise. The purpose of the stress test is to assess how the European insurance sector would cope with severe but plausible developments of the financial and economic conditions. The focus of this year's stress test is on a prolonged COVID-19 scenario in the context of a 'lower for longer' interest rate environment. From mid-April to mid-May 2021, EIOPA will be consulting with participants via a Q&A exercise. Publication of the final report is scheduled for December 2021.
EIOPA reports on use of limitations and exemptions from reporting under Solvency II
On 6 April 2021, EIOPA published a report on the use of limitations and exemptions from reporting applied by national competent authorities (NCAs) in different markets during 2019 and Q1 2020. In 2019, five NCAs granted limitations and exemptions to 125 undertakings and one NCA granted limitations and exemptions to six groups. In Q1 2020, 12 NCAs granted limitations to 833 undertakings and four NCAs granted limitations and exemptions to 55 groups. However, the majority of NCAs reported no major changes in authorising the use of limitations and exemptions from reporting with NCAs continuing to grant limitations and exemptions on a case-by-case basis.
EIOPA calculation of volatility adjustments
On 8 April 2021, EIOPA published updated representative portfolios for use in calculation of the volatility adjustments to the relevant risk-free interest rate term structures for Solvency II. Publication of risk-free interest rate term structures is undertaken on a monthly basis and ensures consistent calculation of technical provisions across Europe.
EIOPA consultation on framework to address value for money risk in the European unit-linked market
On 13 April 2021, EIOPA announced a consultation on the development of a framework to address value for money risk in the European unit-linked market. This consultation is a result of EIOPAs concerns that the costs surrounding these products are too high, a situation that has been exacerbated by COVID-19. The consultation is open to all interested stakeholders until 16 July 2021.
EIOPA publishes results from study of market modelling & credit risk
On 9 April 2021, EIOPA published the results from its yearly study on market modelling and credit risk. Items addressed in the report include credit risk charges for sovereign bonds & corporate bonds, equity and real estate risks, effect of COVID-19, sustainability and dependency structures.
EIOPA update on the symmetric adjustment of the equity capital change for Solvency II and monthly technical information for Solvency II Relevant Risk Free Interest Rate Term Structures - end March 2021
On 8 April 2021, EIOPA published updated technical information on the symmetric adjustment of the equity capital charge and risk free interest rate term structures for Solvency II purposes with reference to the end of March in both cases.
EIOPA publishes discussion paper on blockchain and smart contracts in insurance
On 29 April 2021, EIOPA published a discussion paper on blockchain and smart insurance contracts. The paper set outs the risks and benefits associated with blockchain and tracks the development of blockchain in the insurance sector. Potential benefits identified in the paper include, enhancing customer experiences through higher efficiency and improving data quality, while potential risks include data protection and privacy issues, and energy consumption. Feedback from interested stakeholders is invited until 29 July 2021.
EIOPA consults on Interbank Offered rates (IBOR)
On 30 April 2021, EIOPA announced the consultation on Interbank Offered Rates transitions. The EU Benchmark Regulation mandates for transparent financial benchmarking and representative economic reporting. Accordingly, the consultation will consider modifications to EIOPAs Risk Free Rate (RFR) in order to develop a common approach for all currencies on transition to the new rates and to maintain consistent RFR term structures. The consultation is open until 23 July 2021.
For more information on these topics please contact any member of A&L Goodbody's Insurance & Reinsurance team.
Date published: 7 May 2021